Follow That Buyer! – Business of Doing Business – The Journal of Antiques and Collectibles – March 2004
By Ed Welch
In the day-to-day operation on your antique business, who is responsible for making you the most money? Is it your spouse or an auction company or group shop from which you buy? Is it a show or group of shows from which you sell? Is it your own individually owned shop? Is it the Internet or an Internet auction company? Get a pencil and paper and analyze who or what is responsible for making your business a success. Consider everything, including yourself. Maybe it is your own hard work and your knowledge that is responsible for making your business a success.
Did you consider your customers? How much is each of your customers worth to you? The lifetime value of a customer is the sum of all profits generated by that customer, minus the cost of servicing that customer. Not all customers are created equal. I serve more than 650 customers a year. Most of my customers cost less than $20 per year to service. This includes the money spent on flyers, announcements for the shows I do, a phone call, and thank you cards. I have about 25 high maintenance customers. I can spend several hundred dollars on each of these customers each year. Most of this money is spent putting on one-person antique shows in hotel rooms or at the customer’s home. I also spend money shipping expensive items via registered mail to and from potential buyers.
Successful antiques-related businesses cultivate customer relationships. Auction services, antiques show promoters, group shop owners, antique trade publications, and successful antique dealers all do this.There must be a good reason.
About 10 years ago, I did a small antiques show in a rural North Carolina village. I did not sell enough merchandise to cover booth rent. However, I sold one item to a collector for $125. Several days later, I sent this person a handwritten thank you note and added his name to my list of North Carolina customers. Since then, this collector has purchased tens of thousands of dollars worth of antiques from me. Hindsight now makes it clear that this small North Carolina show is one of the most productive shows that I have ever had, not because of what I sold, but, because I gained a serious collector.
In 1963, I studied customer relationships in a college business course. We had spent several days discussing the expense of acquiring a new customer and have moved on to ongoing customer relations. A follow student asked the following question: “Suppose a customer complains about a product or service and the customer is clearly in the wrong.” The professor seemed to take a long time pondering his reply. He normally stood behind his desk, but he slowly walked to a position in front of his desk and close to the first row of student desks. Without saying a word, he removed his jacket, his tie, his shirt, and stood there in his undershirt. He stood there long enough to make everyone in the class a bit uncomfortable.
“The first thing you should do,” he said, “is to look the customer straight in the eyes and ask, ‘What is it that I can do to correct this problem.’ Next, you should listen very carefully to what the customer asks and if you can possibly fulfill the request, you should do so.”
When a customer complains, the customer usually has a very good reason. Whether the customer is a right or wrong is not relevant. If you do not satisfy the customer’s request, you stand a good chance of losing that customer. A customer is worth much more than the profit on any one sale.
How much should a business pay to buy a new customer? The answer to this question depends on the nature of your business. Some major corporations are willing to pay several hundred dollars to acquire a new customer. Other major corporations set the limit at between $10 and $20. A few large businesses have a limit of between $3 and $5. During the dot.com craze of the 90s, some high-tech businesses spent hundreds of thousands of dollars to acquire a few hundred dubious customers. Such companies are no longer in business today.
How much should an antiques dealer pay to buy a new customer? The correct answer is zero. Dealers should build their customer lists from the people who buy from them. Record the name and address of every person who buys anything from you. Most of this information will be on the check. If he or she pays by cash, take the time to make a sales receipt that includes the customer’s name, address, telephone number, and e-mail address.
Your first expense of servicing a new customer will be the expense of buying and sending a thank you card for the sale you just made. Keep a record of all sales by any customer. This information will help you calculate the worth of a particular customer.
The graph below shows my total sales to each customer in the form of a pie chart. This chart shows sales to my 10 best customers plus all the rest for the year 2003. Customer #1 purchased 16.46 percent of everything I sold last year. Customer #2 purchased 8.54 percent of everything I sold last year. Customer #3 is an auction company that sold 5.76 percent of everything I sold last year.
Customers #1, 2, 7, and 9 are collectors. They do not resell the items they buy from me. I should also ad that customer #2 has held position number one for four of the past seven years. He did not purchase as much as normal because I failed to find merchandise of a high enough quality.
Customers #4, 5, 6, 8 and 10 are dealers who resell items they buy from me. Last year, 44.35 percent of my sales were made to my 10 best customers. The remainder of my sales, 55.65 percent, is distributed among slightly more than 650 additional customers.
My longest steady-buying customer has been with me 37 years. I made my first sale to this person December 23, 1967. The item was a Kentucky Rifle signed “Roupe.” The selling price was $600. I have had many customers more than 20 years. Generally, I gain between five and 10 good customers each year. Of course, I loose customers each year due to retirement, the sale of an entire collection, and, at my age, a few of my customers die each year. Reading business books and magazines does not have to be boring. I recommend the magazine Optimize. This magazine is a business publication for Executives, CEOs, CIOs, and other business leaders. The articles are short, concise, and written in plain English. They are easy and fun to read. If you run an antiques business, you are the Chief Executive, the financial officer, the purchasing agent, the packer, the shipper, the bookkeeper, and the secretary. If you do not take charge of your business practices, who will?
I also suggest the following articles in particular: “What Are Your Customers Worth?,” by Snuil Gupata and Donald R. Lehmann, Optimize Magazine, May 2002; “How Profitable Are Your Customers?,” by Tony LoFrumento, executive director of CRM (Customer Relations Management) Morgan Stanley, Optimize Magazine, April 2003; and “Co-Creating Value with Your Customers,” by C. K. Prahalad and Venkat Ranaswamy, Optimize Magazine, January 2004. I also recommend the new book,
[amazon_link id=”1578519535″ target=”_blank” container=”” container_class=”” ]The Future of Competition: Co-Creating Unique Value with Customers[/amazon_link], published last month by the Harvard Business School Press. This is an interesting look into the ongoing research on the transformation of the customer from a “passive buyer” into an “active participant.” This transformation is due in large part to the Internet, and the book helps businesses make sense of it. If you are on the Internet, you buy differently today than you did five years ago. Do you know why you do so? Do you know that the buyers of antiques and collectibles make buying decisions today based on information that was not available just five years ago? The magazine articles can be downloaded free at www.optimize.com . The book is available at [amazon_link id=”1578519535″ target=”_blank” container=”” container_class=”” ]Amazon[/amazon_link].